Most Pacific island states are reliant on overseas development aid, although foreign trade and investment is taking on greater importance in their economies. As part of a broader global trend, trade policy is a new arena of debate between OECD countries and developing nations in the region.
Australia, New Zealand, Fiji, Papua New Guinea and Solomon Islands are currently members of the World Trade Organisation (WTO), while Tonga, Samoa and Vanuatu have applied to join. Only Australia, New Zealand and Papua New Guinea are members of Asia Pacific Economic Co-operation (APEC), though the Secretariat of the Pacific Islands Forum (PIF) has observer status. With the growing importance of these bodies in the Asia-Pacific region, all island nations are affected by global trends on trade and investment. Many are undergoing "structural adjustment", under conditions set by multilateral institutions such as the World Bank and Asian Development Bank (ADB).
A major impetus to develop trade agreements in the Pacific has been the growing importance of the European Union (EU) as a trade and aid partner in the region. The EU is one of the largest donors for Forum island countries, and the 14 Pacific member states of the African Caribbean-Pacific (ACP) group are to receive 29 million Euro (A$50 million) for regional development over the period 2001-2005, in addition to EU bilateral grants to individual countries.
A new EU-ACP agreement was signed in June 2000 in Cotonou, Benin (the original site - Fiji - was ruled out by the May 2000 coup). The new agreement comes into force in 2002 and replaces the longstanding Lom? Convention between the 71 ACP Countries and the EU. Since its inception in 1975, Lom? has given non-reciprocal trade preferences to ACP exports into the EU market, with more than $1 billion Euro provided over the past 25 years (One major beneficiary is Fiji, which sells over 40% of its sugar crop to the EU at heavily subsidised prices). However, since these preferences favour only ACP countries, rather than all developing countries, they are discriminatory and may contravene the EU's obligations to the WTO - as shown in recent EU-US disputes over bananas. To overcome this problem, the Cotonou Agreement requires the negotiation of new WTO-compatible trade arrangements, to enter into force in 2008. This development has strengthened Pacific island efforts to create a regional trade agreement.
REGIONAL TRADE AGREEMENTS
The concept of possible trade integration was first discussed at the inaugural
South Pacific Forum (now Pacific Islands Forum) in August 1971. The need for
an actual agreement was taken up more recently as part of the region's response
to global trends towards trade liberalisation, including preparation for the
planned launch in December 1999 of a new round of WTO trade negotiations in
Seattle. In 1999, Forum leaders from the 16 member nations "endorsed in
principle a free trade area among Forum members noting that this would be implemented
in stages over a period of up to 2009 for developing Forum Island Countries
and 2011 for the Smaller Island States and Least Developed Countries."
Over the past year, Forum trade officials have negotiated the draft texts of new trade and economic cooperation. In June 2001, Forum Trade Ministers met in Apia, Samoa to endorse the legal text of two new agreements (which can be found on the Forum Secretariat website at www.forumsec.org.fj):
1) The umbrella Pacific Agreement on Closer Economic Relations (PACER), setting out how the island countries will trade with the two developed Forum members Australia and New Zealand, and
2) Pacific Islands Countries Trade Area (PICTA) agreement for the fourteen island countries (excluding Australia and New Zealand).
The PICTA and PACER agreements were endorsed at the Forum Heads of Government meeting in Nauru in August 2001. PICTA provides for the phased elimination of tariffs between island countries. The larger island economies should have abolished most tariffs by 2009 and the smaller ones by 2011. The phasing in of the agreement over this period should be accompanied by strategies to help governments' adopt alternative taxes and economic reform measures to compensate for the revenue they will lose from tariff reductions. The Trade Agreement will enter into force after six countries have ratified it. Through PACER, Australia and New Zealand, while not being included as members of the Pacific Islands Trade Area, will be treated on at least the same negotiating basis as the European Union.
Changes to the regional trade regime are part of a larger restructuring of Pacific economies, being driven by multilateral institutions. In Papua New Guinea, the World Bank has been the lead multilateral agency involved in public sector changes, through structural adjustment programs. In other countries, the Asian Development Bank (ADB) has financed such "reform" programs: the Marshall Islands, Federated States of Micronesia, Samoa, Cook Islands, Fiji and the Comprehensive Reform Program (CRP) in Vanuatu. The process has been co-ordinated through donors' meetings and the Forum Economic Ministers' Meetings (FEMM). The ADB acknowledges that the FEMM Action Plan is based on "market friendly policies widely accepted as economically sensible, albeit politically difficult to implement."
The World Bank issued reports in the early 1990s that became key texts for donors concerned about low economic growth rates in the islands. Between 1991-3, the World Bank and USP co-hosted a series of policy workshops, funded by AusAID and other donors, on private sector development, public sector reform, "making government more effective" and reforming government finances. Australian academics and journalists also contributed to the ideological push for economic policy change in the Pacific, through the Pacific 2010 project. This "new doomsdayism" from Canberra was sharply criticised by community groups in the Pacific, which were concerned about the social and cultural impacts of these "reform" policies.
A significant turning point for these structural adjustment programs was the 1994 South Pacific Forum in Brisbane, where the then Labour Prime Minister Paul Keating and Minister of Pacific Island Affairs Gordon Bilney stressed that Australia's aid to the region would not increase and that priority would be given to governments seen to be addressing structural reform. The 1995/6 Budget announced the Policy Management and Reform Fund (PMR) to allocate grants "competitively between island countries on the basis of demonstrated commitment to reform". Policy Management and Reform remains a central focus of AusAID programs in the Pacific. From $4.6 million in 1995-6, the PMR budget has increased steadily - in the 2001 budget, $20 million is allocated.
Since 1995, Australia has supported the Foreign Investment Advisory Service of the World Bank and International Finance Corporation, to "provide support for the establishment of policy and regulatory environments to stimulate trade and support private sector development and investment in the islands." The 2001 budget announced that a further $2.3 million would be provided for a new phase of the project. Under its Economic Reform and Governance program, AusAID provided $1.2 million in 1999-2000 for the AusAID / World Bank Pacific Facility, to support the Bank's engagement in the region through technical assistance and feasibility studies.
Regional aid and trade policies have been influenced through the Forum Economic Ministers' Meetings (FEMM), which first met in Cairns in July 1997. The FEMM Action Plan adopted by the Forum sets out a neo-liberal agenda for regional economic restructuring, including: liberalisation of trade and removal of tariffs; reduction of staffing in the public sector; flexible labour markets; corporatisation and privatisation of government agencies in transport, communications, energy, water and other sectors; introduction of Value Added Taxes; and removal of some controls on the finance sector. FEMM meetings highlight the private sector as having a central role in the stimulation of the economic environment to initiate growth.
The FEMM process was initially dominated by a push to integrate the Pacific Islands in line with broader APEC and WTO regimes. The July 2000 FEMM meeting noted: "We will, to the extent practicable, implement domestic measures consistent with WTO and APEC provisions and obligations, and co-operate in responding to and taking advantage of multilateral trade developments."
AusAID, the World Bank and the ADB have been major supporters of the restructuring program, with the ADB providing US$100-150 million a year in loans to its 12 Pacific islands members and another US$15 million in technical assistance grants. Through the 1990s, the ADB proudly explained the impact of its reforms, especially significant cuts in public sector employment in some countries: a 57 % reduction in the Cook Islands (March 1996 - October 1998); 37 % in FSM (1996-January 1999); 33 % in the Marshall Islands (October 1995 - March 1999).
OPPOSITION TO STRUCTURAL ADJUSTMENT
Such cutbacks have been resisted by public sector employees and university students,
as the restructuring hits hard at working people. In the Marshall Islands, the
reforms involved a three-year wage freeze. In Papua New Guinea in 2000, the
government rejected recommendations from the Minimum Wages Board to increase
the basic wage by 160 percent (the current level was set in 1992). Popular anger
rose however, because the Salaries and Remuneration Commission increased the
basic salary of judges, civil servants and Members of Parliament by between
33 % and 100 %.
From 1995, the Pacific Concerns Resource Centre (PCRC), the Pacific Island Association of NGOs (PIANGO) and other church and community groups organised NGO Parallel Forums at the time of the annual Forum meeting, to analyse the impact of the FEMM process and discuss alternatives. NGOs such as Development Alternatives with Women for a New Era (DAWN) have analysed the impact of WTO policies on Pacific women and young people - in the Cook Islands, the budget for education dropped from $10.6 million (1993-4) to $5.5 million (1996-7), while housing and community services were reduced from $9 million to $1 million in the same years.
Another group working to challenge neo-liberal ideology is the Suva-based Ecumenical Centre for Research, Education & Advocacy (ECREA). ECREA was founded in 1991 by a group of concerned theologians from different Christian denominations who came together to talk about what it means to be a Christian in Fiji. In 1996 the Group was formally accepted as part of the Fiji Council of Churches (FCC) changing its name to the FCC Research Group. The group contributed to public education on globalisation, such as sponsoring a 1999 lecture series at the USP on "Globalisation, Faith and Culture". In 2001, ECREA developed its own constitution as an independent organisation while maintaining and nurturing relations with the Fiji Council of Churches.
In April 2001, ECREA hosted a "Regional Consultation on Globalisation, Trade, Investment and Debt" at Nadave, Fiji, which spoke out against the new neo-liberal policies. The meeting noted: "These economic models and policies enrich a few people while impoverishing most others. There is growing evidence that current economic policies 'operate above the heads' of the people, marginalising many from the decision-making processes of governments, and particularly those shaping and directing our economy and its impact on our lives. All of these trends present major concerns for churches and non-government organisations."
Father Kevin Barr of ECREA has noted that the islands have countervailing influences to global markets, that challenge the World Bank and ADB template: "The communal ownership of land is still strongly adhered to, the subsistence economy continues to complement the cash economy and provides livelihoods for many, and communitarian values of caring and sharing still motivate most people. Moreover, many who are unemployed in the formal sector of the economy create livelihoods for themselves (self-employment) in the non-formal sector. Thus in the Pacific alternatives to an export-oriented, market-driven globalised cash economy continue to exist and sustain small participatory communities…The modern formal cash economy devalues the traditional economy because, being money-based and reliant on production for cash, buying and selling and earning wages, it cannot comprehend or measure production for consumption, reciprocity, sharing and communal work without wages."
In Fiji, the Rabuka government established a Commercialisation, Corporatisation and Privatisation Committee (CCPC) in 1993 to implement its structural adjustment program, with a sweeping agenda over electricity, ports, airport, public housing, timber and media. Church, union and NGO activists in the Campaign Against the Privatisation of Water campaigned against the government's 40% rise in water rates in January 1998 and challenged the sell-off of public assets. Union activists at the Civil Aviation Authority (CAA) resisted the sacking of 500 CAA employees at Nadi airport in 1999, as part of the privatisation of government services. These campaigns and the introduction of a Value Added Tax contributed to the massive swing to the People's Coalition in the May 1999 elections (the Labour-led Coalition removed VAT from essential foodstuffs and halted privatisation of government services, but many of these policies have been rolled back since the May 2000 coup).
In Tonga, the privatisation of government departments into Boards and Commissions was meant to provide better services at low cost. In 1997, the Crown Prince became Chairman of the Tonga Electric Power Board (TEPB). Promising that the tariff for electricity would be greatly reduced, he obtained the approval of the TEPB for his own company to generate electricity and sell it to the TEPB. He then invested T$14 million in a new generating plant, and his company was issued with a "Development Licence", exempting it from paying duties and other government charges on imported diesel oil. Today, Shoreline Power Ltd's monopoly over the production of electricity has caused a huge increase in the cost of power. However, as the TEPB has owed more than T$6 million to the government since 1995, no dividends have been paid back to the government.
Donors have lauded Samoa for its efforts in implementing the ADB economic reform program, though Samoa has not been unaffected by political fallout from the process (as shown with the assassination of Minister of Works Luagalau Levaula Kamu on 16 July 1999, and government attempts to muzzle Apia's lively media).
In September 2000, the ADB updated its Pacific regional strategy as a framework for the next five years. During 2001-2003, the ADB will provide US$386.8 million to the islands. The strategy document develops a sub-regional approach for the first time, recognising that different needs, priorities and strategies apply between Melanesia, mid-level states (Tonga, Samoa, Federated States of Micronesia, Cook Islands, Fiji) and atoll states (Kiribati, Marshall Islands, Nauru and Tuvalu).
The strategy shows continued focus on economic management, governance and public sector reform, through the promotion of private sector development, improved physical and IT infrastructure and stronger financial sector management. At the same time it suggests that the strategy will allow a more active role for women and civil society, support environmental management and use poverty reduction as unifying theme. The ADB program was debated at its 34th Annual General Meeting in May 2001 in Honolulu, Hawai'i, surrounded by anti-globalisation protestors.
PROTEST AGAINST PRIVATISATION IN PAPUA NEW GUINEA
Protest over structural adjustment has been sharpest in Papua New Guinea, which
is the only Pacific country that has had an in-country World Bank office and
regularly access funds from the World Bank and International Monetary Fund (IMF).
Structural Adjustment Programmes were forced on Papua New Guinea because it
was unable to meet the payment schedule on its debts to the international banks,
first in 1989 and then again in 1994. Most of these debts were accrued because
of: 1) the rapid increase in the cost of energy, food and commodities imported
from industrialised countries in the 1970s; 2) a series of 'big project' loans,
which have been marketed by the World Bank and other international banks since
1976; 3) the sharp rise of interest rates on loans and the simultaneous collapse
of the prices of commodities produced by island countries in the 1980s; and
4) Papua New Guinea's lack of control over the exploitation of its labour, land,
and resources by foreign companies who repatriate huge profits through mechanisms
such as transfer pricing.
In its second SAP, the World Bank introduced a 27 point "policy matrix, including land registration, require the ending of price controls, a freeze on wages, increases in health and education fees, and the abolition of the minimum wage". The Bank proposed environmental controls to regulate logging, and increased spending on health and education. The SAP also sought the completion of land registration in two of the most populous provinces, East Sepik and East New Britain. World Bank policies in Papua New Guinea have been centrally connected to the forestry sector, as it is one of the few countries where the World Bank has sought to use structural adjustment loans to promote environmental policy reforms - with mixed results.
In March 2001, troops of the Papua New Guinea Defence Force (PNGDF) rebelled and seized arms in their barracks in the capital Port Moresby. The protest was triggered by a Commonwealth review team recommending significant cuts to the size and operations of the army. The rebellion came at a time when there is growing anger in Papua New Guinea over the impact of government privatisation policies, and highlights the crisis in the army after the Bougainville war. The soldiers made explicit connections between their plight and the structural adjustment program. The rebel soldiers called for the expulsion of World Bank and IMF advisors from the country, together with Australian military advisors. Spokesperson Captain Stanley Benny stated: "Their foreign ideas have completely destroyed the nation. The World Bank, IMF and Australian influences - I repeat, Australian influences - have denuded the nation's vast resources under the guise of assistance."
Hundreds of students took to streets of the capital, protesting against the government's economic policies. They argued that the defence cutbacks were one part of an overall economic strategy imposed on Papua New Guinea by foreign agencies. In March 2001, a joint statement from the PNG Trade Union Congress and Melsol stated: "The soldiers' struggle here is part of the people's global fight against the wanwol gavman" (global government). Protesting students and soldiers also highlighted corruption in government, and the way that government cost cutting under World Bank programs hit the poor hardest.
In June, a five-day peaceful protest commenced against the government's privatisation policies. On 21 June, several thousand students and their supporters had marched from the university campus to Parliament House, closing schools and the public transport system and shouting "Rausim [kick out] World Bank, Rausim IMF, Rausim Australia". The aftermath of the protest led to a mobile police assault against the University of Papua New Guinea, with four shot dead and many more wounded (Such mobile police squads were developed in the 1980s and 1990s, in part to protect enclave development projects such as mining and timber).
Papua New Guinea is caught in a debt trap, owing the IMF, World Bank and other multilateral institutions some US$906 million (its total annual debt servicing of US$211 million is about 40% of the government's whole budget). The growth of domestic debt has accelerated since 1992, especially during recent years when the PNG government was unable to access Bank funds, due to the sour relationship between the Bill Skate government and the multilateral agencies. As a condition on both existing loans and a further pending loan, the PNG government is attempting to implement the IMF and World Bank structural adjustment program. The Morauta Government is cutting back the public sector and introducing privatisation of public assets such as Air Niugini, Post PNG and Telikom PNG, in return for further loans from the international financial institutions.
The Australian government has endorsed the importance of an ongoing "economic reform" program in the region, even though some Pacific government leaders - especially from the smaller island states - have expressed concern at the pace and social and cultural impacts of economic adjustment. At the sixth Pacific Islands Conference of leaders, held in Hawai'i in February 2001, Niue Premier Sani Lakatani noted: "Small island nations are vulnerable and are practically of no consequence when it comes to combating the adverse effects of globalisation and what is emerging as the new order of colonialism. The uneven distribution of power and wealth points to the potential loss of sovereignty by national governments as the control of their economies become more subject to global forces such as multinational companies and the pressures of the select global brotherhood. Globalisation is good for some, not for others." Former Fiji President Ratu Sir Kamisese Mara also noted that: "Colonialism was usage of power by strong nations against weaker ones, while globalisation is the use of power by multinationals against the weaker."
Some Forum leaders are aware of the fundamental link between the social and cultural impacts of globalisation and regional security crises. As President Teburoro Tito of Kiribati noted at 2000 Forum meeting in Tarawa: "There is a new consciousness in our region to address social and cultural issues as important issues for development. There has been too much emphasis on economic development and very little on social and cultural development. This gap is widening over the years and producing the things we see now with social and economic crisis."
Policy makers and technocrats have underestimated the social costs of the current restructuring, but are reluctant to acknowledge the influence of past or present policy errors (it is a salutary lesson to reread old predictions from Canberra about how resource rich Melanesian countries would do well in a globalised economy, while small island states in Polynesia would suffer - a far cry from Canberra's current lauding of Samoa and angst over Solomon Islands and Papua New Guinea). There has been remarkably little self-criticism about how a generation of Australian consultants promoted the expansion of government bureaucracies in the Pacific, but are now touring the region saying government is an impediment to development!
However, Pacific governments reliant on foreign aid, investment and markets are constrained in adopting alternatives. International debt leaves little room for maneuver or dissent: although island countries have relatively small external debts in comparison to Asian countries, the per capita debt as a percentage of per capita Gross National Product (GNP) is much higher than of China, South Korea and Malaysia.
Samoa with a population size of approximately 200,000, at the end of 1997 had an external debt/GDP ratio of 72% and the external debt servicing percentage was 11%. With management of economic reforms, at the end of 1998, the per capita debt as a percentage of per capita GNP was 102%. In Solomon Islands, overall public debt increased from US$135 million in 1997 to US$152 million in 1998 which was 52% per capita debt as a percentage of per capita GNP. Since the recent crisis, Solomon Islands is on the brink of economic collapse as a result of the political instability. A reduction in domestic and external debts was planned on the assumption that necessary funds could be raised through privatisation, borrowing from the National Provident Fund and also externally. Debt and non-debt arrears were reduced by USD $13 million, which was made possible in the first instance by grants from Papua New Guinea and Taiwan, which allowed for the clearance of outstanding ADB loans and thus made a new ADB program loan feasible. In Fiji, the national debt as at June 1999 was 52% of GDP (approximately 75% of this debt is owed by the national government with the statutory authorities owing the rest). After the May 2000 coup, current indications are that the national debt will double by the year 2004, largely to finance the national budget.
While Melanesian nations have sold their natural resources for low return, the export of labour and the return of remittances have been important for many Micronesia and Polynesian countries. SIDS like Tuvalu have also tried innovative revenue generation methods, from the creation of trust funds, to philatelic and dot.com deals. The sale of passports has been a much-criticised money-spinner, while many smaller countries like Nauru, Cook Islands, Vanuatu and the Marshall Islands have established tax havens, offshore banking facilities and flag of convenience shipping registries.
Nic Maclellan is a long-time researcher and activist for an independent and nuclear free. This article is excerpted from "A Changing Role for Australian NGOs in the Pacific", a discussion paper for the Australian Council for Overseas Aid (ACFOA), published in September 2001.
For further information, contact Jim Redden at ACFOA in Canberra, Australia,
email jredden@acfoa.asn.au